There are two general schools of thought on allowance. Some people believe children should earn money in exchange for doing chores. Others don’t think you should pay them for contributions every family member should make.
There are pros and cons to every method of administering an allowance to children. But in any case, the ultimate goal is to teach your kids money management skills.
The Role of Allowance in Teaching Kids Personal Finance
These days, many high schools offer financial literacy courses, and teens are certainly old enough to earn their own money to practice with. But it’s vital to teach financial literacy earlier with an allowance.
According to a 2016 survey by the American Institute of CPAs, 4 out 5 adults say receiving an allowance taught them financial responsibility.
And a 2018 paper published in the Journal of Family Issues notes that kids learn more about money from their parents than any other source. Specifically, kids learn in two ways: from the example their parents set and what parents actively teach their kids.
But the paper notes that most research overlooks one of the most crucial modes of teaching — hands-on practice. Kids learn best through doing.
And it’s important to let them practice when they’re young and the stakes are low. The best time to learn is when they’re with you so you can monitor how they spend, save, and invest the money they earn.
Beth Kobliner, author of “Make Your Kid a Money Genius,” notes in an article for PBS that kids as young as 3 can understand basic money concepts. And by age 7, many of their money habits are set.
Thus, the earlier you start teaching kids about money — and letting them practice with the real thing — the better. Fortunately, that’s easier than ever with kid-friendly mobile apps and prepaid debit cards.
Types of Allowances
Simply deciding an allowance is necessary is only half the battle. There are several options to consider.
Whichever one you choose, it’s crucial to allow yourself some flexibility. The method you end up using may not be what you started with, as your child may respond unexpectedly. Ultimately, you could find that you need to change your method to get the best results.
But you have to start somewhere. So just choose the option that makes the most sense to you.
1. The Unconditional Allowance
The unconditional allowance consists of giving a regular amount of money without requiring the child to earn it by doing chores.
That lets you maintain money lessons and chores as different issues. And since the money isn’t tied to chores, kids can’t decide they don’t need the money and refuse to work. Instead, they learn that chores are a part of life.
On the plus side, any weekly, biweekly, or monthly allowance gives your child the opportunity to manage money regularly in a way that’s similar to a paycheck. It’s easier to save for specific goals, and the child can make plans based on expected future income.
The downside is that this method doesn’t teach your child that pay is compensation for a job well done.
Additionally, an understanding of how money works can be lost on kids if parents don’t pair the allowance with financial lessons.
A 2008 study from student financial literacy foundation JumpStart Coalition found that kids who received an unconditional allowance had the lowest rates of financial literacy. But that doesn’t have to be the case.
Economist and author of the study, Lewis Mandell explains to Insider that allowances are only effective when they give families the opportunity to talk about money. So as long as you’re doing that, any method could work.
2. The Pay-as-Needed Allowance
With a pay-as-needed allowance, kids don’t regularly receive a set amount of money. Instead, they ask their parents for money as they need it.
On the negative side, the kids haven’t necessarily done anything to earn this money. And if it’s contingent on regularly doing chores, the correlation is neither immediate nor strong.
This allowance structure also provides money inconsistently, making it difficult for a child to save for future expenditures. However, it does necessitate frequent discussions about money, as you must evaluate each request on its merits.
Ideally, under this scenario, if your child wants an e-reader, an aquarium, or a new bike, and there is no major holiday or birthday in sight, they would ask you for the money and you would determine whether your child has earned the money or what they can do to earn it or a portion of it.
This scenario forces you both to consider money management each time a situation arises. This method may be suitable for parents who don’t feel kids should earn money for doing chores but should receive the funds simply by virtue of being a family member.
3. The Earn-Money-for-Chores Allowance
The most common type of allowance is one in which kids earn money for chores, according to the 2019 T. Rowe Price Parents, Kids, & Money survey.
Under this structure, kids must do certain chores around the house in exchange for money. It’s often a set amount of money for a list of chores they must do each week.
The benefits are that the child sees a direct correlation between effort and the money they receive.
But for this to be effective, there must be consequences when the child doesn’t do the chores, which requires parents to keep track. And if there are several children in the household, that may be difficult.
An alternative is to have a list of chores with a set price per chore. You might require your child to choose a minimum number of chores or leave it up to them. More involved work pays more money, while quick or easy tasks pay less.
If your child doesn’t do the work, they don’t receive spending money.
4. The Hybrid
Many parents, including me, use the hybrid method. As a contributing member of the family, my 6-year-old son is expected to do certain age-appropriate chores around the house for free, such as feeding the cat, picking up his toys, and putting away his laundry.
If he doesn’t do these chores, he loses privileges like TV or playtime. But he doesn’t lose allowance. He gets an unconditional base allowance (not tied to chores) just for being a member of the family.
He can earn additional money for tackling larger tasks. The amount he earns depends on the task’s difficulty or how long it takes. That forces us to discuss money each time he takes on a larger task.
Larger tasks are dependent on your child’s age but could include chores like raking leaves, shoveling snow, mowing the lawn, or cleaning the house.
I went with this method because the rationale for an unconditional allowance makes sense to me. Neither my husband nor I get an allowance when he does the dishes or I do the laundry. We simply do these things because they have to get done, and we each need to do our part.
But I’ve also always had an entrepreneurial spirit. Today, I make my living as a part-time teacher and full-time freelance writer. But as a kid, I was always coming up with ideas for my own businesses.
And it all started with convincing my parents to let me take over for our then-housecleaner. I offered to do it for less than she did but more than my usual allowance. I eventually branched out into cleaning their friends’ houses. I had my own thriving cleaning business with flexible hours and better-than-minimum-wage pay.
I’d love to encourage a similar entrepreneurial drive in my son. And a hybrid model like this — where he chooses how much he can make based on the work he decides to take on — is one way to do that.
What’s the Going Rate?
If your child comes home from school with stories about the exorbitant amounts of money their friends get for an allowance, refer to this simple guideline before caving in to demands to keep up with the Joneses.
Generally, you should pay $1 to $2 per year of age weekly. So a 10-year-old would earn $10 to $20 per week, and a 14-year-old would earn $14 to $28 per week.
If this seems high (or low) to you, you can come up with whatever seems reasonable based on how much work gets done (if you link the allowance to chores), how many children you have, what your allowance budget is, and what type of allowance system you use.
For example, you could assign each chore a particular figure. Taking out the garbage could be worth $1, and emptying the dishwasher could be worth $2.
Alternatively, consider the purpose of the allowance. For example, if you want your child to learn financial responsibility, what specifically do you want them to learn? How to spend or save wisely? If so, give them slightly less than they’d need to buy their favorite things so they have to practice saving.
But if you give them too much less, they may get discouraged. So figure out the right balance between teaching delayed gratification and the value of working for the things they want.
Regardless, getting clear on your motivations can help you decide on the right amount.
Where Does the Money Go?
A 2019 survey by the American Institute of CPAs found that the average American child makes around $1,500 per year from his or her allowance, or $125 per month.
However, only 3% of parents said their kids save any of their allowance. Instead, they spend most of the money on toys, digital devices and downloads, and while hanging out with their friends.
It isn’t enough to give kids their own money and expect them to learn responsibility. When left to their own devices, few kids will manage money well. We as parents must also teach them to manage it.
Teach Kids to Apportion Funds
Just like we earmark a percentage of our paychecks toward savings and retirement, we should teach our kids not to blow all their money as soon as they get it.
It’s OK to spend a portion of each allotment immediately, but a portion should also go into savings. Teaching kids the importance of building a savings fund is extremely valuable.
You may also want to encourage children to reserve a percentage of their earnings to donate to charity. Having them choose the charity makes them more likely to set aside the money.
A simple three-jar method can be an effective means of helping kids distribute their money and watch their savings grow. Get three large jars and label them “spending,” “saving,” and “charity.”
Older teens, especially those with part-time jobs, should also be encouraged to save some money for future expenses, such as college, a car, or a trip.
Allow Them to Spend
Part of teaching money management is allowing kids to spend their hard-earned money on something they truly want.
My son loves toys. And as long as he has the money to buy what he wants, it doesn’t matter if he spends the money he’s saved on a new Lego set or Batman action figure. Kids need to learn that work merits rewards.
Additionally, with age comes greater responsibility, and that includes being responsible for personal spending money.
Younger teens, especially those who might make money doing odd jobs like cutting grass, raking leaves, or babysitting, might be required to pay their own way at the movies or when they go out to eat with their friends. Older teens may have to pay for gas or contribute money toward the family cellphone plan as well as pay for some of their personal expenses.
Different Chores for Different Ages
If you’d like to link your child’s allowance to chores, how early should you start? Kids as young as 3 may not fully grasp the concept of an allowance, but they can start learning family responsibility by performing a few easy tasks.
Some appropriate chores for kids of all ages include:
- 3 to 4: Young children can learn to fold washcloths, put napkins on the table, fill the pet’s food dish, put their toys away, and help sort laundry into different baskets.
- 5 to 7: By 5 to 7, they can handle slightly more complex tasks. They can learn to fold laundry, do some light dusting, load or unload the dishwasher, help set the table, fill a pet’s water dishes, water outside flowers, and do some weeding in the garden.
- 8 to 10: Kids 8 to 10 years old can set and clear the table, vacuum, sweep, dust, take out the garbage, bring in the mail and newspaper, shovel snow, rake leaves, walk the dog, sweep out the garage, make their beds, and clean their rooms.
- 11 to 13: Older tweens and younger teens can learn to do laundry, wash the dishes, mow the lawn, trim hedges, help prepare meals, wash cars, clean bathrooms, and babysit younger siblings.
- 14 to 18: Older teens have the increasing capacity to earn money outside the home. Their reliance on an allowance diminishes, and they may have very little time to earn money for extra chores. They’re also likely to have less interest. You can decide when to discontinue the allowance for older kids.
While these are general guidelines, you are the best judge of your child’s maturity level. Don’t force kids to perform chores (such as lawn mowing) they aren’t capable of performing well or comfortable doing.
On the other hand, it doesn’t hurt to ask them for ideas. At 6, my son isn’t yet capable of chores like snow shoveling and lawn mowing. But he often surprises me with the things he can do, like pulling weeds and watering in the garden.
If kids are allowed to concentrate on chores they like or don’t mind doing, they’re more likely to be consistent with helping out. Of course, they must sometimes do chores they dislike, but I’ll often give my son a choice.
Knowing that he loves sweeping the floor but hates putting away laundry, I’ll let him choose one or the other. As long as work gets done and I have help around the house, I’m not too picky about which chores he does.
Allowance and Chore Tracking
If you’re going to use chores to keep track of what your kids earn, you might find it helpful to use a chore chart or house cleaning schedule. You can find many types of free charts on the Internet, such as those found on KidPointz.com.
They’re especially handy if you must track chores for more than one child. You can also create your own chart.
A chart provides a good visual for kids of all ages. Young kids might like to put stickers on the chart once they’ve completed a chore, as it gives them a sense of pride and accomplishment.
Older kids can easily see which chores they have completed and which they haven’t and (if you pay per chore) how much money they can expect to receive for the week or month.
As a parent, a chart allows you to track what you owe, especially if your allowance system calls for subtracting from your child’s allowance for chores that went undone or adding payment for additional chores.
Whether you track chores or just allowance, there are also loads of money apps for kids. They let you track their allowance if you prefer to go the digital route.
Although kids typically learn best when they have something visual and tactile they can see and touch, like paper money, people rarely use real cash these days. So I keep track of my son’s weekly allowance using a smartphone app called Rooster Money.
It automatically adds his weekly amount every Friday. And whenever he buys something, I can deduct the amount from his total spending pot. It also allows him to sort money into separate buckets for saving, giving, and specific goals.
The premium version allows you to tie allowance to specific chores. You can assign tasks a dollar value. And whenever your child completes the task, you can mark it complete, which triggers the addition of money to their pot.
Rooster Money doesn’t tie to a bank account, so the money is hypothetical. But it does give kids a visual way to track their spending and saving. Bankaroo is another app that works similarly.
Other apps like Greenlight, BusyKid, and GoHenry tie to either a bank account or prepaid cards with real money. These may be more appropriate for older kids who need to access their cash when a parent isn’t around.
Other Ways to Teach Money Management
Giving an allowance isn’t the only way to teach your kids about money. And no rule says it can’t be fun.
You can also teach your kids money management skills by playing board games like Monopoly and The Game of Life. Kids can learn about money and investments, and it provides you with an opportunity to have financial discussions with them in a way that doesn’t turn them off or bore them to tears.
You can also use play to teach younger children about money. Set up a pretend store and show them how to pay for things and save for what they can’t afford.
There are different schools of thought as to what type of allowance is appropriate. But regardless of the system you use to funnel money to your kids, the most critical component is frequent discussions about how they manage their money.
It’s so easy to get caught up in the bustle of our daily lives and forget the long-term consequences of our actions (or inaction).
As parents, our primary job is to prepare our children to successfully handle life as an adult by teaching them crucial skills, and money management is undoubtedly one of them.